Working Paper: CEPR ID: DP7721
Authors: Yuriy Gorodnichenko; Monika Schnitzer
Abstract: This paper examines micro-level channels of how financial development can affect macroeconomic outcomes such as the level of income and export intensity. Specifically, the paper investigates theoretically and empirically how financial constraints affect a firm's innovation and export activities. Theoretical predictions are tested using unique firm survey data which provides direct measures for innovations and firm-specific financial constraints and information on shocks to firms' internal funds that can serve as firm-level instruments for financial constraints. There is unambiguous evidence that financial constraints strongly adversely affect the ability of domestically owned firms to innovate and to export and hence to catch up to the technological frontiers. Furthermore, the negative effect of financial constraints on productivity is amplified as these constraints force export and innovation activities to become substitutes even when these activities are natural complements. Findings reported in the paper can help explain why poor countries don't catch up, despite increasing globalization.
Keywords: beeps; export; financial constraint; innovation; productivity; technology frontier
JEL Codes: F1; G3; O16; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Innovation (O35) | Export Activities (Y10) |
| Financial Constraints (D20) | Innovation and Export Activities (O39) |
| Severity of Financial Constraints (G32) | Probability of Innovation or Exporting (O39) |
| Domestically Owned Firms (F23) | Impact of Financial Constraints (G32) |
| Financial Constraints (D20) | Innovation (O35) |
| Financial Constraints (D20) | Export Activities (Y10) |
| Financial Constraints (D20) | Productivity (O49) |